International Trade and Impact on Domestic Markets

Introduction

Crude oil imports are a key feature in the United States, and nonagricultural industrial supplies fuel exports in the global trade marketplace. In 2016 alone, a change in price in these sectors showed the impact of market forces on U.S. trade. Moreover, engaging in trade increases competition mainly by challenging monopolistic tendencies in the economy, hence increase in efficiency. This essay outlines the role played by trade in developing the United States markets, supply and demand forces, as well as competition forces for industries in the United States markets.

Crude Oil Imports

The United States plays a crucial role in international trade. The country primarily imports goods such as crude oil and exports many products, including nonagricultural industrial supplies and materials. Crude oil demand is immensely essential for the U.S. in facilitating energy, transportation, and manufacturing industry processes. Trantin (2017) indicates that prices of crude oil surged in 2016 and accounted for a 32.7% growth rate in its import price index. The growth was influenced by global market dynamics that saw cuts in OPEC production together with fluctuating domestic production levels of gas and oil. Competitive crude oil markets depend on both domestic supply and, globally, demand. The decreases in domestic production led to the increases in dependency on imports. Such a shift would result in an increase in both equilibrium prices and quantities.

Nonagricultural Industrial Supplies and Materials Exports

The export price index for nonagricultural industrial supplies and materials rose 6.2 percent in 2016 after tumbling 15.8 percent in 2015, as reported by Trantin (2017). This increase was underpinned by major price gains recorded during the second quarter of the year. At that time, there was an increase of 3.2 percent in May, the largest one-month advance since a similar gain in March 2011. Stronger prices for fuel and metals contributed to the gains led by the rise in prices of nonferrous metals by 12.2 percent (Trantin, 2017).Technological developments make the market more competitive and, therefore, enable factors of higher production efficiency that could translate to lower consumer prices within the sector.

The interrelation of these products reveals changes in competitiveness and their impact on the various market structures. For example, crude oil, when their prices increase, as they have in recent times, it can make consumers and businesses take the hit of higher costs, which will shift supply curves to the left and drive equilibrium prices upwards, whereas nonagricultural industrial supplies can become more competitive due to technological advances translating into higher supply and lower prices in the domestic market (Trantin, 2017). International trade therefore has a big impact on the U.S. domestic markets due to its effecting supply-demand equilibrium.

How opening to Trade affects the Monopoly in the Domestic Market

Opening up trade can dramatically affect a domestic monopoly by introducing competition, which changes market dynamics. When the entry of foreign firms into the market forces the monopolist to compete with them for price-setting, the monopolist is forced to lower the prices and be more efficient. That is where greater competition would obviously benefit consumers through lower prices and increased choice.

From the perspective of game theory, even just one more competitor can yield perfect competition-like outcomes (Shi, 2019). In a monopolistic setting, the monopolist prices above marginal costs in order to maximize profits. However, under the entry of another competitor, both firms must be taking each other’s pricing strategies into account. This interdependence creates a strategic setting where firms compete on prices.

As they undercut each other’s prices, the market price approaches marginal cost. Shi (2019) argued that this situation is a manifestation of Nash equilibrium, whereby no firm has anything to gain by unilaterally changing its strategy; hence, the market outcome tends toward perfect competition conditions—low price and high output.

Conclusion

The U.S. trade of crude oil and industrial supplies has shown the impact of international competition on market equilibrium and consumer prices. Crude oil price increases reflect import reliance, and industrial supplies benefit from increased competitiveness. Trade liberalization challenges the power of domestic monopolies, too, promoting efficient competitive behaviors as would occur in perfectly competitive markets. Overall, the dynamics of trade bridge U.S. economic structures to be more efficient and competitive.

References

Trantin, J. (2017). Crude oil prices spur gains for US import and export price indexes, despite the appreciating dollar: 2016 annual summary. Monthly Lab. Rev., 140, 1.

Shi, W. (2019). The Cat and Mouse Saga Continues: Understanding the US-China Trade War. Tex. Int’l LJ, 55, 187.